Reselling digital goods violates copyrights, a federal judge rules

While you can sell your used hardcover copy of “The Life of Pi” or your vinyl edition of “The Yes Album” on Amazon.com, eBay.com or a host of other online sites and physical stores, you can’t sell your e-book or MP3 version of either, according to a recent federal judge’s ruling.

Founded in October 2011, ReDigi bills itself as an online marketplace for digital used music where consumers can upload and resell songs they buy from Apple Inc.’s iTunes. ReDigi’s defense said that when a consumer makes a digital album available for sale, the file is transferred onto its servers and the company’s technology confirms the consumer’s original file was deleted from the seller’s computer.

But Judge Richard J. Sullivan of the U.S. District Court for the Southern District of New York ruled that ReDigi’s secondary market for digital music infringes on record companies’ copyrights. In his opinion, handed down Saturday, Sullivan reasons that while ReDigi claims to migrate a file from a user’s computer to its own servers, that technology does not mean a consumer is selling a “material object” that he purchased. “It is simply impossible that the same ‘material object’ can be transferred over the Internet,” he wrote.

Instead, Sullivan wrote, the digital file a consumer bought is reproduced onto ReDigi’s server, which violates U.S. copyright law that gives copyright owners the exclusive right to reproduce, distribute or sell copyrighted material.

While ReDigi claimed that “first sale doctrine”—the common law principle that someone who buys an item can do what he wants with it—Sullivan countered that the doctrine does not cover unlawful reproductions. “The first sale defense does not cover this any more than it covered the sale of cassette recordings of vinyl records in a bygone era,” he wrote.

Used digital goods, unlike used books or CDs, are essentially indistinguishable from new digital goods, Sullivan wrote. And so, if a consumer could buy a used e-book at half the price he would pay for a new e-book that could significantly drive down the price of digital goods.

That’s one reason the case presents significant consequences to retailers that sell digital goods. However, for two of the most prominent players in the space—Apple Inc. and Amazon.com Inc.—the case is also important because both retailers have applied for patents related to digital goods secondary markets. Amazon applied for a patent in January to develop an “electronic marketplace for used digital objects.” Apple last month applied for a patent that covers techniques that enable a consumer to transfer a digital good to another consumer.

ReDigi says it will appeal the ruling. Capitol Records could not be reached for immediate comment.

Amazon is No. 1 in the Internet Retailer Top 500 Guide and Apple is No. 3.